1. Investing in Unit Trust Funds
As an investment starter for your child’s future, unit trust funds are easier to handle as they tend to skirt the middle ground in terms of affordability (get started with as little as RM1,000), flexibility and maturity terms.
It used to be too costly for retail investors, but the market has now been opened up to allow more everyday folk to join the fund. In fact, many first-timers get on board in the world of investments through this product.
A unit trust fund works by pooling together the funds of many people with similar investment goals to buy into bigger, more diversified portfolios (e.g. shares, properties, bonds and deposits).
How risky is it? Well this depends on your risk appetite and your investment goals – if you have cash to spare and are willing, high risk, high return options do exist. Top performing funds in Malaysia can see rates of 8% to 15% per annum, with the latter mostly focussed in equity asset classes (e.g. stocks and convertible bonds) which are more risky. For the purpose of your child’s future though, you may want to opt for a long-term, low-to-medium risk portfolio.
Units Trust Funds function much like other investment schemes, and shouldn’t be confused for a savings program. This means that there is a possibility for gains and losses. Thus, the principal fund is not always guaranteed to remain the same (unless of course, you opt for a Guaranteed Fund).
2. Buying Education Insurance
Education represents one of the biggest costs for parents and some go completely broke trying to help their children achieve their dreams. Some parents even pull money out of their EPF accounts to cover tuition fees which will leave them without sufficient retirement funds.
Moreover, if none of these options are available, your kids may in turn, take out large loans to pay for their schooling, leaving them saddled with debt before they’ve even graduated.
Investing in a Child Education Insurance plan can fix a big part of these money woes. It’s a solid choice in terms of affordability as premiums can be as low as RM600 per year depending on the plan and provider.
Of course for a bigger benefit pay out, you can expect to fork out higher premiums. Consider carefully what you can afford, since these payments are long-term. See that you are able to meet these expenses over an extensive period or else your policy may lapse leaving you with some financial losses.
There are many types of policies available; with endowment policies, your capital plus a maturity value is typically guaranteed. On the other hand, some investment-linked policies may not provide such assurances, but could offer higher return potential instead. Make sure you understand the complete terms of your plan before purchasing.
One more plus point for buying education insurance for your children is that you may claim tax reliefs of up to RM3, 000 per year for your premium payments.
3. Investing in Property
This is somewhat unconventional as people don’t often look to a property purchase as being an apt investment for a child’s future.
But when you think about it, this type of non-stock investment could be really lucrative and fruitful in more ways than one.
Housing property yields are prettier in the long-term and this is one of the reasons why it might be a strong investment option here. Imagine a property that has been sitting and appreciating for 18 to 25 years while your children grow. In a steady market, you are looking at attractive returns sans Real Property Gains Tax.
Now the downside to property as an investment is that it isn’t as cheap to service and may be too much of a long-term commitment for some. But those who can afford it or have ways to offset costs (through rental incomes, tax reliefs, etc.), the potential on returns and opportunities are quite valuable. For example:
Sell the home when your child is of age and use the money to cover tertiary education fees, to pay for their wedding expense or even living costs abroad.
Apply cash-out refinancing on the home and utilize the money to reinvest for your children.
Use the home as collateral to help your kids obtain study or business loans with better rates.
Even if you don’t sell the home or take money out of it, you can always save it for your child to have a place of their own and help them start their lives without being debt-ridden.
*If you are thinking of investing in property for your children, do check out our home loan comparator to find the best financing packages available.
Special Option for Bumiputeras
An additional investment option is available to Bumiputeras in the form of Amanah Saham Bumiputera (ASB) which carries rather attractive interest rates (dividend rate averaging 7% to 8% per annum). Plus, if you don’t have the funds to make this investment, you can take out an ASB loan to finance it!
See which banks are offering the lowest rates with our ASB loan comparison tool now!
At the end of the day, the best investment for your child’s future is the knowledge of proper financial habits. Teaching your offspring from a young age to save, grow and protect their money is essentially the stronge